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IRS Releases Guidance on the Treatment of Same-Sex Spouses for Retirement Plan Purposes

On April 4, 2014, the IRS released Notice 2014-19, which provided new guidance on the application of the Windsor decision to qualified retirement plans.  Notice 2014-19 clarified that a qualified retirement plan is not required to recognize the same-sex spouse of a participant prior to June 26, 2013 (the date of the Windsor decision) or to recognize such same-sex spouse prior to September 16, 2013, if the participant resided in a state that did not recognize same-sex marriages.  A plan amendment is only required to the extent the plan’s terms are inconsistent with the Windsor decision and related guidance (for example, if the plan’s definition of “spouse” refers to the Defense of Marriage Act or applies the marriage laws of a participant’s state of domicile).  A plan amendment also is required if the plan chooses to apply the Windsor decision for some or all plan purposes prior to June 26,… Continue Reading

IRS Issues Guidance Regarding Improper Payments from Health FSAs

On March 28, the Internal Revenue Service (the “IRS”) released a Memorandum from the Office of the Chief Counsel of the IRS which addressed several issues regarding correction procedures to follow in the event that improper payments are made from an employee’s health flexible spending account arrangement (“HFSA”).  The following guidance was provided: (1) the correction procedures for debit cards in the proposed cafeteria plan regulations may be used to correct improper payments from HFSAs; (2) an employer may apply the correction procedures in those proposed regulations in any order, except that the employer may only forgive an improper payment from an HFSA as an uncollectible business debt after all other permissible correction methods have been attempted; and (3) if an employer does forgive an improper HFSA payment as an uncollectible business debt, the amount forgiven is to be reported as wages on Form W-2 and is subject to withholding… Continue Reading

Supreme Court Holds that Severance Payments are Subject to FICA

In rejecting the decision of the U.S. Court of Appeals for the Sixth Circuit, the U.S. Supreme Court recently ruled unanimously in favor of the IRS and held in United States v. Quality Stores, Inc. that severance payments for involuntary terminations of employment are generally subject to Federal Insurance Contributions Act (“FICA”) taxes (i.e., Social Security and Medicare taxes). In taking a broad view of the FICA statute, the Court concluded that severance payments are “remuneration for employment” within the meaning of the FICA statute and in consideration for employment. The Court also ruled that the payments made by Quality Stores, which were based on individuals’ positions with the company and their years of service, were specifically tied to their employment, and thus, wages for purposes of FICA.  United States v. Quality Stores, Inc., No. 12-1408 (U.S. Mar. 25, 2014).

DOL Issues Proposal to Amend 408(b)(2) Regulations

The U.S. Department of Labor proposed an amendment to the regulations under ERISA Section 408(b)(2) that would require service providers to provide a guide to employers to assist the employer in understanding the fee disclosures.  The guide would be required if disclosures are made using multiple or lengthy documents.  The guide would be required to specifically identify the document, page, or other specific locator, such as section, that would enable the employer to quickly and easily find fee information.  An announcement of the DOL’s proposal can be found here, and the text of the proposed amendment can be found here.

IRS Delays Application of One Indirect Rollover Per Taxpayer Per One-Year Period Rule

The general rule under Internal Revenue Code Section 408(d)(3)(A)(i) is that a participant who receives a distribution from an IRA can avoid tax on the distribution if the distribution is rolled back into an IRA within 60 days after receipt.  However, this is limited to one distribution/rollover per one-year period.  The IRS had issued Proposed Regulation § 1.408-4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), each providing that this limitation is applied on an IRA-by-IRA basis.  However, in Bobrow v. Commissioner, T.C. Memo. 2014-21, the U.S. Tax Court held that the one distribution/rollover limit is applied on a taxpayer basis, not an IRA-by-IRA basis.  This means that, in a given one-year period, a taxpayer with multiple IRAs could receive only one distribution that is rolled over back into an IRA and have it excluded from gross income.  The IRS announced that it intends to follow this decision and will… Continue Reading

Final Regulations Clarify Transitional Reinsurance Fee Payment Requirements under the Affordable Care Act

The U.S. Department of Health and Human Services (“HHS”) issued final regulations, published on March 11, 2014, setting out the amounts for 2015 coverage to be charged to self-funded and insured health plans that provide “major medical coverage” for the transitional reinsurance fee (the “Fee”) under the Affordable Care Act (the “ACA”).  The transitional reinsurance program is one of the risk programs implemented by the ACA to minimize the incentives for health insurers in the individual and small-group markets to avoid enrolling higher-risk individuals, by transferring funds to insurers who cover higher-risk populations.  The amount of the Fee is based on the number of “covered lives” under the plan, determined in accordance with one of four HHS-approved methods and reported to HHS by November 15 of the coverage year.  In addition to confirming the definition of “major medical coverage” for purposes of the Fee, the regulations provide that the Fee… Continue Reading

Fifth Circuit: Investment Advisor Paid by a Third Party is Not an ERISA Fiduciary

The U.S. Court of Appeals for the Fifth Circuit recently held that an investment advisor was not a fiduciary for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), because he did not receive any fees from the retirement plan for his advice regarding the investment at issue in the case, but received a commission from the third-party broker/dealer used to make the investment recommended by the advisor. Under ERISA, an investment advisor is an ERISA fiduciary if, among other things, he or she renders investment advice to an ERISA plan for a fee or other direct or indirect compensation. The Fifth Circuit did not address whether the third-party commission was indirect compensation for the advisor providing investment advice to the retirement plan. Rather, the court relied on its own precedent, that a commission paid by a third party is not the same as a fee… Continue Reading

ACA Reporting Regulations for Providers of “Minimum Essential Coverage”

Concurrent with the issuance of the Regulations, the Treasury Department also released regulations under Section 6055 of the Code, which relates to the reporting requirements for providers of “minimum essential coverage.” The information reported under Section 6055 of the Code is to be used by the IRS to administer the ACA’s individual shared responsibility provisions (also known as the “individual mandate”). Large employers who are required to report information under both Sections 6055 and 6056 of the Code will report such information on a combined form. A copy of the Code Section 6055 regulations is available here.

ACA Large Employer Information Reporting Regulations

The U.S. Treasury Department issued final regulations (the “Regulations”), published on March 10, 2014, regarding the information reporting requirements for large employers (i.e., those with at least 50 full-time employees or equivalents (“FTEs”)) under Section 6056 of the Internal Revenue Code of 1986, as amended (the “Code”). Section 6056 of the Code was added by the Affordable Care Act (the “ACA”) to require large employers to provide information to the Internal Revenue Service (the “IRS”) and to their FTEs that is necessary for the IRS to administer the ACA’s employer shared responsibility provisions (also known as the “play or pay” rules), as well as the individual premium tax credit under Section 36B of the Code. Specifically, the Regulations require each large employer to report certain information regarding the “minimum essential coverage” that it offered (or did not offer) to its FTEs during each calendar month. The Regulations provide for a… Continue Reading

Texas Ban on Same-Sex Marriage Ruled Unconstitutional; No Immediate Employer Action Required

On February 26th, a federal district court in Texas found the state’s ban on same-sex marriage unconstitutional.  However, the court delayed implementation of its order pending appeal.  As a result, employers and employee benefit plan sponsors do not need to take any actions at this time as a result of this decision.  Employers and plan sponsors should, however, continue to monitor the rapidly changing legal landscape regarding recognition of same-sex marriage in the United States and consult their legal and benefit plan advisors for additional guidance.  Leon v. Perry, SA-13-CA-00982-OLG (W.D. Tex. Feb. 26, 2014).

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